The 6-week losing streak has come to an end…barely!  The Dow Jones and S&P 500 were positive for the week for the first time since April.  With summer temperatures rising, it is safe to say the economy is slowing and the markets have as well.  To add heat to the simmering market and global economy we have, Greece is crawling closer to a catastrophe.  Bailout or not, Greece poses a very serious risk to global markets.  Like dominos, global bond markets could fall one by one due to their interconnectedness.  This is exactly why the European Central Bank (ECB) is so desperate to help Greece.  The fear is that Greece is beyond saving and the efforts now are only delaying the inevitable.  Because of all the uncertainty in the markets, should you consider moving your money into bonds?

The reality is that with rock bottom interest rates, there is nowhere for rates to go but up.  When rates rise, almost all bonds will go down.  When the market is scary, investors will pull back to bonds for safety; however, in this environment, bonds are one of the scariest places as the world is awash with debts that cannot be repaid.  Remember bonds are by definition debts owed.  Also remember that the US is technically bankrupt, half of Europe is bankrupt, and Japan is no different.  If we look at municipal bonds in the US, the story is the same on the solvency front.  This leaves the option of corporate bonds that have some appeal, but again, rising rates will crush these bonds as well.  Floating rate bond funds remain an option because of their defense against raising interest rates, but where else can investors look to put their money?

If you’re a frequent reader of my market commentary, this will be no surprise to you – Precious Metals.  It is not only logical, but downright obvious, that gold and silver, which have been money and stores of value for centuries, would thrive in the global debt and currency problems we are having.  The reality is both gold and silver are under their inflation-adjusted all-time-highs from the 70’s and 80’s.  How can that be considering demand is surging, and the debts are growing?  I think two quotes from none other than former Fed Chairman Alan Greenspan will answer this for us:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation […] Deficit spending is simply a scheme for the hidden confiscation of wealth.  Gold stands in the way of this insidious process.  It stands as a protector of property rights.”  – Alan Greenspan, Gold and Economic Freedom (1968)

Note that Greenspan’s comments were made prior to 8/15/1971 when Nixon took the US off the gold standard.

Now fast forward to the then Fed Chairman Greenspan who was testifying before the Committee on Banking and Financial Services on July 24, 1998:

“Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.”

Why on earth would the Fed want the price of gold to fall?  Leasing gold means they would loan the metal to the big banks to sell into the market to drive the price of gold down.  If that is not admittance to a strategy to manipulate gold, I do not know what is.  The answer to keeping gold’s price down was given in the first quote.  The Fed wants people dependent on their debased currency.  The only problem is they are debasing their currency to the point of worthlessness. 

Considering that the dollar has been devalued to almost nothing, houses are still sagging in value, and western economies (and their currencies) are being crushed with debt, it would only make sense that the metals be attractive.  But, global central banks do not want the metals to rise and make their paper money look bad.  As well, they are finding it their duty to protect the big banks that are desperately trying to manipulate the metals.  The only problem is central banks have leased their metals, and now have resorted to derivatives trading to try to manipulate the metals.  The manipulation attempts cannot last much longer because people and wise governments are buying the physical metals, which is overwhelming the efforts to push the prices down.  The big banks and the Fed cannot play their game for much longer, and when their heavy hand is released, the metals will find their true value as a protector of wealth.

I am confident the metals will remain a store of value as they have for thousands of years regardless of manipulative efforts.  A large part of my confidence in the metals is really an indictment on poor monetary policies, government corruption, corporate corruption, greed and self-serving politicians.

Do you have an investment strategy that incorporates precious metals?  If not, call me to schedule a free review of your current investment portfolio – 913.693.7918.

John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals.  For more information, visit https://www.chladekwealth.com.

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